US Treasury yields slip after big gains this year

  • The dollar posted a small rebound against the euro Thursday afternoon after falling the most in 10 months to three-year lows.
  • When the dollar depreciates, the price of foreign goods increase relative to domestically priced goods, making imports more expensive.
  • Inflation undermines the real value of each coupon payment from holding debt, forcing the price of bonds down while raising yields to attract buyers.

U.S. government debt prices rose Thursday after President Donald Trump said he wants to see a stronger dollar.

The yield on the benchmark 10-year Treasury note fell two basis points to 2.624 percent at 2:28 p.m. ET, while the yield on the 30-year Treasury bond slipped to 2.887 percent. Bond yields move inversely to prices.

Earlier, the yield on the 10-year note hit 2.676 percent, its highest level since Jul. 2014, when the 10-year yielded as high as 2.692 percent. The yield on the 2-year note hit 2.104 percent, its highest level since Sept. 2008.

The dollar rebounded against the euro Thursday afternoon after President Trump told CNBC that he would like to see a stronger dollar. The president's comment come a day after the dollar fell the most in 10 months to three-year lows Wednesday.

"The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar," Trump said in an exclusive interview from the World Economic Forum in Davos, Switzerland. "Our country is becoming so economically strong again and strong in other ways, too."

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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The dollar had been falling after Treasury Secretary Steve Mnuchin said a weak dollar is good for the United States.

"Obviously a weaker dollar is good for us as it relates to trade and opportunities," Mnuchin told reporters, according to Bloomberg, adding that the currency's short-term value is "not a concern of ours at all."

His comments reinforced earlier statements from President Donald Trump, who previously stated that the dollar was "too strong" and that U.S. exporters can't compete because of the exchange rate.

But when the dollar depreciates, the price of foreign goods increase relative to domestically priced goods, making imports more expensive, leading to an increase in inflation in the U.S. Increasing inflation, in turn, undermines the real value of each coupon payment from holding debt, forcing the price of bonds down while simultaneously raising yields to attract buyers.

The euro also got a boost Thursday after European Central Bank (ECB) President Mario Draghi failed to convince investors that the central bank's easy monetary policies will last much longer.

The European currency has been trending northward over the past few weeks as the region's economy strengthens and national politics stabilize. A stronger euro could eventually hamstring European exports and weaken inflation.

The Treasury Department auctioned $28 billion in 7-year notes at a high yield of 2.565 percent. The bid-to-cover ratio, an indicator of demand, was 2.73. Indirect bidders, which include major central banks, were awarded 78.1 percent.

Direct bidders, which includes domestic money managers, bought 10.2 percent.

—CNBC's Patti Domm contributed to this report.